Phoenix New Home Market ‘A Quagmire’
The Arizona Republic has this on the new home market. “There’s no good news in metropolitan Phoenix’s new-home market, unless you’re a buyer. The latest numbers show that home builders pulled 21 percent fewer permits for new houses in April than the same month last year. Builders have not been successful persuading consumers to take speculative homes off their hands, said analyst RL Brown.”
“Brown calls the new-home market a ‘quagmire.’ He had forecast a downturn of about 5 percent this year from last year’s record 63,570. But with 17,050 permits through April, he’s preparing a revision and said it’s unlikely that the market will equal 2004’s performance of 60,872.”
“Stuck with houses they can’t sell even with huge incentives, builders have been slow to build more homes. That will hurt them later this year, Brown said, because it soon will be too late for builders to restart production and book sales this year. ‘I think they (builders) are in denial,’ Brown said.”
From Realty Times. “It now takes longer for Queen Creek homes to sell, and the number of homes on the market has climbed, which gives buyers more to choose from with a little leverage. The number of homes for sale in the Southeast Valley hit 14,782 in March. There are currently 2167 resale homes for sale in Queen Creek.”
“The number of spec homes on the market has increased because people have had to let their new homes go back to the builder because they can’t sell their existing homes.”
“Other realtors I have spoken with say the market is very slow. There are so many resale houses on the market from investors who bought last year plus the builders are offering huge incentives to buy new so the competition for buyers is fierce. The builders have had a lot of cancellations as speculators bail out so they are selling these cancelled homes at bargain basement prices to reduce their inventory.”
“The most saturated segment is the smaller 3BR, 2BA house which was a favorite of investors. These houses are not upgraded and the investors are trying to cash out. Some investors are feeling the pinch of house payments as they did not expect to have to hold these properties for a long period of time.”
“Many investors have unrealistic price expectations and start way too high. In some subdivisions every third house is for sale because the builder allowed investors to purchase. The higher end houses seem to fare a little better. However, they must be very upgraded to justify the price.”
“Gas prices also hit hard as Queen Creek is a horrible commute with no signs of getting better.”
“Sellers are advised to add some basic upgrades like window coverings, back landscaping and a garage door opener. Most investor properties do not have any of these upgrades so this would be a big advantage over the competition. Also, as summer approaches it is important to have the air conditioning on. Buyers won’t linger in a hot house.”
“I wish I had better news for my Queen Creek sellers. I recommend doing basic upgrades, putting the house on the market at a competitive price and see what happens. If it doesn’t sell either rent it out for a year or wait until next summer to see if the market has improved.”
‘Sellers are advised to add some basic upgrades like window coverings, back landscaping and a garage door opener. Most investor properties do not have any of these upgrades so this would be a big advantage over the competition.’
It is really odd to see all the brand new homes without any sort of sign it is lived in. It’s not just QC.
I wonder how long the meme “taking longer to sell” will last. I mean, these high-ballers will be stranded as new homes come on and are sold lower. The meme should already be “will never sell at these price levels”
Replace “days on market” with “months on market.”
remember when cap ex was going to replace home spending ? what was cap ex in 1999 ?
10 yr at 5% says put a fork in it
I would love to see some more pics of QC. It sounds like GROUND ZERO!
I keep asking for readers to take some. Apparently no one lives there, and I don’t blame them for not driving all that way!
I posted a picture of QC from about three weeks ago. It’s in the photo gallery.
What is the caption on the picture?
The Caption is “Another Day in Queen Creek Arizona” Here is the link. I hope it works.
http://thehousingbubbleblog.com/slideshow/#20
That is HILARIOUS! Looks like all those priced-out AZ buyers will soon have their pick of the land. I love it!
LOL. Queen Creek is ground zero. Schadenfreude-riffic!
Yep …classic case study of an over priced, over developed stagnating market just waitng for a price adjustements!
With global equity markets down 9% from the May highs the price adjusments are amaizingly close, then we thought 60 days ago!
I want MORE. LOL.
I went out to Queen Creek three or four weeks ago. Don’t expect too many more pictures as it takes me about 40 minutes each way from my house in Mesa during non rush hour. The residents schlepping that trip twice a day during rush hour have to be hating life right now.
Well, all the home equity they’ve built up must make the drive easier to bear. NOT!
And now it looks like they’re gonna get hammered with a big tax increase as the city looks for a 63% increase in its budget to deal with - you guessed it - its transportation issues:
The bottom line on the tentative Queen Creek budget to be presented tonight to the Town Council may at first blush look like a typo.
Town staff is requesting that more than $157 million be budgeted for the next fiscal year, a 63 percent increase over last year.
Transportation projects, the ire of many residents who are regularly stuck in traffic jams, will absorb a large chunk of the increase. About $54 million, which plans call to be covered by the town’s first-ever bond, is budgeted for the new road-improvement district, while the library fund will see a $7 million increase.
http://www.azcentral.com/community/gilbert/articles/0517gr-qcbudget0517Z12.html
Also interesting to note that many of these “commute from hell” communites were started post Katrina when fuel prices were all but guaranteed to rise. It’s also funny to see these bare bones “trophy homes” for sale on C/L with dirt backyards! At this point it sounds like every man for himself and if builders have to throw specuvestors under the bus to keep afloat then so be it.
What’s really funny is that these guys just expect to rent the QC home out if they can’t sell. Who would want to rent way out there and commute 45 minutes in? Although some of the Craigslist rental prices are dirt cheap. The only reason that is might be a good place to rent is if you telecommute, or work nights, while renting a 4/2/2 2000 sq ft. new place for $900 a month.
They couldn’t rent homes in Queen Creek ten months ago so I don’t expect it to happen now. I remember puttin some cheap vertical blinds in a investor home last summer. The realtor who was managing it actually put a couple in this brand new, never lived in house for three months. They were waiting for their brand new house in Queen Creek to be completed so they could move in.
The truth is that the traffic is beyond terrible out there. I mean on a Saturday afternoon traffic can be backed up for a light at Power and Rittenhouse for almost two miles. I mean here you are out in the middle of nowhere in a big traffic jam.
Speaking of Queen Creek but last time I was out there they were really rolling along with that new Anthem development which is on Hunt Highway but like another eight miles further out than Johnson Ranch. I’m guessing that the projection is thousands of new homes but you would have to be retired to actually live there because there are no jobs out there.
Yesterday Larry Kudlow had the CEO for Toll on and he said that Phoenix was going to be one of the bright spots in the market. He was on about 5:30 PM ET. I’ve got a feeling that in 6 months nobody will be talking about a soft landing anymore.
How come Larry didn’t ask the Toll Brothers about all the selling of his stock and stock options worth millions since first of year. This is another Ken Lay and Enron in the making, and CNBC keeps the hype going while the insiders are selling. Larry Kudlow should be ashamed of his reporting
Enron was a fraud. Has Toll committed fraud?
The guy sold some stock but is still far and away the largest shareholder in the company.
Larry is a permabull… if you don’t tell him that the economy and tax-cuts are fantastic, then you’re a downright communist. Most of his questions are loaded, so don’t expect any dissenting opinions on his show.
Ditto!
Actually, one of his guests dissents all the time, Barry Ritholtz, here is his blog, and excellent daily read:
http://bigpicture.typepad.com/
It’s amazing to me that “investors” don’t seem to grasp the turn in the market and react accordingly. If/when you’re cash-flow negative, and the underlying asset is declining in value, why not dump the loser, take your loss and your remaining capital? Because of target fixation and hope - people want what they had and they hope (a four-letter word!) things will get better. Preserve capital and sell now at whatever the market will bear and live to fight another day.
nor jac wy,
Wow! As simple as that sounds do we really needed to be reminded of that? Well, evidently yes! I’ve advocated this for years and will people listen?
The problem is that a lot of investors feel they are entitled to appreciation for holding the asset. Builders are going to have to undercut them in price before investors realize that they bought at the top of the market and there is no appreciation.
Most unsophisticated investors don’t understand the risk-reward premium… the higher the potential reward, the greater the risk. And to say that a large majority of recent RE investors are unsophisticated and can barely be considered “investors” is an understatement.
I can think of two possible reasons. First, they new investors didn’t purchase Carleton Sheets’ last tape, which explains how to cut your losses. They are not financially savvy, and they don’t know what they’re doing.
Second, many of them have negative equity, and can’t bring money to the table, so they are hoping for a miracle turn around. That ain’t gonna happen.
One easy solution to this second problem is to allow people to tap into 401k or 403b or other retirement income to bring money to the table. I kinda like this idea. It’s a bailout, since the goverment would need to alter the IRA rules, but it is placed mostly on the shoulders of the clowns that made the poor decisions in the first place. And if they have money to bring to the table, then they can lower the price, buyers will buy, and the market will begin functioning again.
Could PHX (and surrounding communities) be more of the proverbial coal-mine canary than San Diego?
Everybody knows SD went up first, but to my knowledge you never had 30-40% of homes going to outstate investors in SD…
PHX, LV, and South Florida seem to be the places that were highest hit by small time specuvestors. This may have made those markets more “commodity-like” as opposed to real estate-like. If this is the case, owners in those areas may treat their RE holdings like commodities, (dumping the losers earlier) making that area more volatile.
I’m starting to think PHX may fall before SD.
Clouseau
That’s right. One of the factors I’ve identified as creating exposure is a combination of raw growth and growth rate. PHX and Las Vegas are both in this category.
Clouseau,
You bring up some good points there enough to convince me that PHX, Vegas, and S. Florida may indeed be these canaries.
Some additional anecdotal evidence - The 1710 sq ft tract home that I have been renting for the past 2+ years in NE Mesa (PHX Suburb), sold as high as $329k last Spring/Summer if I am not mistaken. Since then, the same floor plan has sold for as little as $287k in my neighborhood in less than a year’s time. The crazy thing is back in Oct. of 2003, the same boring “stick” home would have sold for $150k to $160k.
Over the past nine months, what I saw as the for sale signs started to spring up like weeds all over the place, was the $400k market and higher really started to grind to a halt. While the $350k and below market was still selling at a pretty good clip (even though prices stagnated). Makes sense since those lower priced homes would have a larger pool of buyers to choose from because of simple economics and income. The interesting thing is since about March of this year, even this once previous brisk $350K and lower market is starting to really stagnate and homes now sit on the market longer as well. Those homes are typically seeing more and price reductions too.
Anyways, thats my observation so far from my corner in the universe and watching this market play out definitely keeps my interest.
I make $60 grand per year. My husband makes about $45. All told, we live comfortably. We have three kids, the dog, etc. But even still, I cringe at paying the mortgage on a 250k house, let alone 300k or more!
What really adds insult to injury in this real estate market is going to zillow to find that the house that is a “steal” at 290k, was purchased back in 2001 for 90k. A very common occurrence.
I truly want to purchase a home. Desperately. I have three sons, and I want to make this future house a home for at least 15 to 20 years. But there is no way in hell I would even dream of buying a house anywhere near the PHX area with prices the way they are now. It’s flat out ridiculous. Most of these sellers should have the greed slapped right out of them, and soon. When that happens, I’ll be there to buy up their loss.
“Stuck with houses they can’t sell even with huge incentives, builders have been slow to build more homes. That will hurt them later this year, Brown said, because it soon will be too late for builders to restart production and book sales this year. ‘I think they (builders) are in denial,’ Brown said.”
If they can’t sell the ones they have with huge incentives, why does he think they are in denial for not building more?
That comment is hard to understand. Brown has been seriously wrong about this boom and maybe he is the one in denial. How could any housing analyst think Phoenix is going to clear this inventory in the next couple of months? It’s already hot.
Yes, that’s it!! That’s the best quote of all, I just glazed over it. Brown is accusing the _BUILDERS_ of being in denial that Phoenix is still a _HOT_ market and they are going to miss the Great Summer Rally.
TGSR
The Great Summer Rally of ‘06. Nice. I can’t wait to see…
I’ve been reading a number of articles lately that seem to suggest that the summer months represent the high selling season in Phoenix. Is this true? I can’t imagine people wanting to drive around looking at open houses in 120 degree heat.
Chill,
Good Question. Traditionally, in years past, there would be a push for buyers to get into a home before schools starts in Mid-August for the kids (probably not unlike other areas). So people will put up with the oven like temperatures and go out and slog through and look at homes. Some of these local East Valley PHX realtors that have been quoted this week and the stories linked to this blog are hanging on with their pinkies on the ledge for dear life that this pre-school push will save them. Unfortunately, as many of us know, its probably not going to save them. When reality hits them the first week of September, I think we might see a new rash of “doom and gloom” from these snake oil salesmen.
Thankfully, the East Valley of Metro PHX doesn’t have a lot of tall buildings for jumpers! :)~
Since the ‘spring bounce’ that Realtors and HB’s were touting has not materialized, now apparently it’s the summer before school that is supposed to reverse the free fall. The main parachute didn’t open and they had to cut it away and now they’re about to pull the cord on the reserve chute. When that fails to open a soft landing seems unlikely.
In case you didn’t know, it’s national analogy day.
Maybe touring air-conditioned homes feels like a higher relief than if it were only 80 degrees.
Bigger contrast?
U.S. April new home median sale price up 0.9% Y-0-Y to $239K
“Sellers are advised to add some basic upgrades like window coverings, back landscaping and a garage door opener. Most investor properties do not have any of these upgrades so this would be a big advantage over the competition. Also, as summer approaches it is important to have the air conditioning on. Buyers won’t linger in a hot house.”
I can hardly see how a $200 garage door opener will make me want to buy a house for $500,000.
OT;…April new home sales up 4.9%….
I am sure we can find the holes in this story!
I don’t see how that’s possible.
suprisingly it was up….but inventory nationally was 565,000
and increasing.
I can believe it - the resale number will tell the story. If they are low then I’ll assume the builders are undercutting the resales. Here in Northern VA the builders’ prices are lower than resales.
That’s my theory, too. Builders are adjusting more quickly to the changing market.
The margin of error is +/- 11.5%
Agreed…..this number will be revised, as was the case with the previous months number, which was revised downward this morning.
Exactly. The shell game continues.
Up from March only when “seasonally adjusted”, the actual volume was down from both March ‘06 and April ‘05. It seems the Y-o-Y numbers have become irrelevant, and buried deep, now that they are negative.
The reader that tracks this site points out that it is now showing 47,311 properties in the Phoenix MLS.
The increase is huge in the last week. I check this site daily and yesterday it was up almost 6,000.
I have 3 close friends that moved to Phoenix the last 12 months.
One of them bought his house there before he sold his house here. His MN house is just sitting here. His home here is a simple small 1100 sq ft ranch style house on a busy road with a 1 car garage. He overpriced it at $320k to cover a lot of “updating” that he did on it, inappropriate to the area, there are larger homes within a 2 block radius of his for $80k less. (not as nice, but bigger which is what buyers will usually choose first IMO)
Now he’s holding 2 mortgages. I’m sure it sucks.
He moved out there last fall, when it was getting colder out here. He said “everybdoy wants to live in Phx, it’s a paradise. Sunny every day and never gets cold!”
I just talked to him. Evidently it’s already 100 degrees there (or close) most days. He’s one of these super fair skinned MN Norse folk, and has had 4 severe sunburns already. He also says his skin is super dry, and he has to put lotion on 2 times a day.
I asked him if he liked PHX, and he said he was surprised at how much more suburban it was than Mpls…
He’s now going to try to rent out his Mpls house to cover mortgage here…
and thinking about moving to California. (sigh).
clouseau
This is a phenomenon I keep running into. A lot of people moved with the intention of selling their current home. Problem is, they completed the move without selling that first one. I think your friend is at stage 2 of this idiocy.
Stage 1: realize that you priced albatross #1 too high to sell (probably due to the high price paid for albatross #2). Reduce price by a nominal amount.
Stage 2: Realize how much money you are hemorraging, and seek to stop the short term pain by renting out albatross #1.
The next stage is open for debate. I have yet to see my personal acquaintances do this (one neighbor is close to this point), but anecdotally, it seems to be happening:
Stage 3: Still hemorraging money, try to raise rents. Short term fix, but you can’t get blood from a stone. Renters tough it out one lease cycle. Renters then leave for cheaper rent, vacancy hurts FB worse than the lower rent.
Stage 4: Albatross #1 back on the market, this time priced to sell.
Based on that, I give the real carnage about 2 lease cycles to come. That puts us at 2008 for the real deals of this bust. Surely, some deals will happen earlier, but the shear volume of these 2 albatross people will deluge the market in 2 years. They will be ready to negotiate, and will be looking for any opportunity to get out.
This guy’s really on a roll. Mistake 1, moving before selling the MN property. Mistake 2, coming to AZ and buying. Mistake 3, “thinking about moving to California”. The Phoenix sun has fried his brain and it isn’t even June!
A similar story to a nurse I worked with here in South Dakota. She sold her house in PHX in 2003 and moved here. Bought a house here then decided to move back to PHX in early 2005. She took a hit selling the house here. I warned her not to buy again in PHX but she was frustrated about missing the run up and had to “buy before they get so high that I can’t.”
So she:
1. Sold in PHX prior to the run-up
2. Bought and sold a house in a non-bubble area short term and lost.
3. Returned to PHX and bought the top.
I’d say she could not have done any worse, without becoming an “investor”
Her timing is so bad I would advise her not even to use a crosswalk. She’d never make it.
104 degrees today…104 to 108 tomorrow. Welcome to paradise, Minnesotan. Since we had one day of rain in the last 6 months, expect it to heat up soon. Should be a fun summer for house hunting.
Your poor friend from MN has not even spent a summer in PHX and is already suffering from the heat. Boy, he has no idea what awaits him the next 3-4 months. Let’s see.. it’s about midnight and the temperature is a balmy 105. OH MY GOD…tomorrow is expected to be 118 and I’m all out of my liquid asbestos cream …. HELPPPPPPPP!
ROFL!
too funny
Bloomberg reports ‘U.S. MBA’s Mortgage Applications Index Fell 6% Last Week’
“Mortgage applications in the U.S. fell last week by the most since February as higher borrowing costs damped home purchases and refinancing.”
“The Mortgage Bankers Association’s index of applications to buy a home or refinance an existing loan dropped 6 percent to 552.6 from 588 the prior week. The gauge of purchases fell 7.1 percent, also the biggest decline in three months, to 396.4.”
Yet more evidence of a declining market. The mortgage index will continue to fall in the coming months.
David
http://bubblemeter.blogspot.com
SHOCKER
Sales of New Homes Jump Unexpectedly, reports AP. Condos in DC are being discounted. Why would developers be cutting prices if sales are brisk?
http://www.dcbubble.blogspot.com
Sales are brisk BECAUSE they are cutting prices (or at least throwing in a lot of incentives).
Right, the builders are merely taking buyers from the resale market.
Off-topic,but just wanted to share this ridiculous house for sale in our neighborhood. The owners bought it last year for 575,000, which was obscenely overpriced IMO. What you can’t tell from the picture is that the places on both sides of this house are absolute dumps. I think someone sells drugs out of one of them, and the other house is falling down AND the owners have made some interesting landscape design choices–to wit, a “Harvest Gold” toilet in the yard with the toilet bowl acting as a planter. You really have to see it to believe it.
We went in the open house and 2/4 bedrooms are in the basement, BTW. Obligatory teeny tiny kitchen with granite (oh joy!) countertops…
http://www.realtor.com/FindHome/HomeListing.asp?snum=34&locallnk=yes&frm=byzip&mnbed=0&mnbath=0&mnprice=400000&mxprice=750000&js=off&pgnum=4&fid=so&stype=&mnsqft=&mls=xmls&areaid=22207&poe=realtor&zp=22207&sbint=&vtsort=&sorttype=&typ=1&x=57&y=8&sid=06ABAD4CC18CC&snumxlid=1057448224&lnksrc=00002
MLS Number AR6004804
Interesting that they call that cabin a “2 story.” Looks like a healty lot. Knock-down house.
Well since we are on Phx again I will post this link for those who missed it. I love this thing. The inventory over the last year just shoots straight up. The prices have been holding steady but I am afraid that can’t last long. There are definitely a ton of houses for sale right now with unreasonably high prices so it would not surprise me if we are ground zero. Nobody here seems to get it yet either???
http://www.homesalenews.com/prices/1_Phoenix_Market_At_Glance.htm
What does the pink line mean? I can’t hear the audio well enough. The red, blue and green lines are explained (# listings, # sales, median price).
The pink line is actually the red line, but his data got skewed so it should be slightly higher in the pink areas. Hope that helps.
And now, news about the Tuscon market:
Greed is out and fear is in when it comes to Tucson’s housing market.
The psychology of the market has changed significantly from a year ago, when speculators and investors, primarily from California, descended on Arizona like locusts, buying up homes and flipping them to score instant profit.
Fear didn’t exist in the market then, only greed.
Times have changed.
Real estate speculators and investors have headed east into New Mexico and Texas. Others have shifted their investments to commodities such as copper, gold and oil and are now riding that crest.
Rest of story at
http://www.tucsoncitizen.com/daily/local/13545.php
I am looking to move to North Tucson in the future. I’m sure happy that they are just “going back to normal” and no price cuts. What a joke! A pal moved to Saddlebrooke three months ago and got 10% off on a used home. I bet it’s just the start.
“If it doesn’t sell either rent it out for a year or wait until next summer to see if the market has improved.”
“Ouch!!” for the person that follows this advice. Yeah, go ahead and rent that property for a loss for another year so you can be even further upside down 12 months from now. “Dump it and run” is the only advice that works, unless you pencil positive and can hold the property for 10 years.
See http://westchesterny.blogspot.com for observations from Westchester County NY.
these are some of the funniest quotes i have seen in a year!is this what bad drugs and standing outside in 118 degree heat do to you?and the realtors! yow! these guys will need to work real hard to reach presidential levels of credibility…thank you ben! i hope i didn’t rupture anything when i srayed my coffee.
Does anyone have a Phoenix blog going?
http://phoenixhousingbubble.blogspot.com/
Fox Econoviews
http://spaces.msn.com/econoviews/